U.S. Cellular exiting Chicago market

Chicago-based wireless carrier U.S. Cellular said Wednesday that it is selling its Chicago, St. Louis and central Illinois markets, along with three others in the Midwest, to subsidiaries of Sprint Nextel Corp. for $480 million.

The deal, which requires regulatory approval and is expected to close in mid-2013, will transfer PCS spectrum and about 585,000 customers -- just under 10 percent of U.S. Cellular's subscribers -- to Sprint. The markets account for about 11 percent of U.S. Cellular's service revenues.

As part of the transition, about 640 local jobs -- 160 of them in Chicago proper -- will be eliminated over time. Overall losses in the affected markets will number about 980 positions, with approximately 850 of those related to retail stores. U.S. Cellular will be closing its stores in the geographies it's exiting; engineering and business support jobs in areas such as finance and marketing will also be eliminated.

U.S. Cellular, which employed about 8,400 at the end of September, will retain its Chicago headquarters along with 860 jobs there. In the greater Chicago area, the company will have about 1,400 employees after the transition.

The Sprint deal "positions us, I believe, very strongly for the future, and we're going to continue to be headquartered here in Chicago," President and Chief Executive Mary Dillon told the Tribune. "We've been here since 1985."
On a morning conference call, Dillon described the move as getting "stronger by initially getting smaller" and said the decision was "not taken lightly," given the effect on the company's employees.

In the markets that U.S. Cellular is selling to Sprint, "we aren't reaching the rate of profitable customer growth and return on investment we need to operate effectively," Dillon said on a conference call.

In the affected markets, postpaid churn -- a wireless industry figure that measures defections among customers who are on contracts -- was roughly double that of the carrier's other geographies, Dillon said, indicating a "disproportionate share of subscriber losses." She added that because the company entered those markets later than its rivals, it had difficulty gaining share and incurred financial losses. Penetration in the affected markets was 3.9 percent versus a rate of 16.2 percent in other areas, Dillon said.

U.S. Cellular does not offer 4G service in Chicago, lagging rivals such as AT&T and Verizon Wireless. In an interview with the Tribune, Dillon acknowledged that launching 4G service requires a step-up in technology investment that did not make sense in markets where penetration is low.

While the company is now getting out of Chicago and other markets, "this move does allow us to get to the next generation of technology in our remaining markets faster," Dillon told the Tribune. The company expects 58 percent of its customers to be covered by 4G LTE by year-end, with the roll-out continuing into next year.

In Illinois, the carrier will continue to service markets including Joliet and Rockford after the Sprint deal closes. After it exits the affected markets, the company will have more than 5.2 million customers in 23 states.

Locally, U.S. Cellular will be transitioning a Bolingbrook customer call center to an existing vendor partner Jan. 1, with that company retaining most of the jobs and employees, Dillon said.

On a conference call with financial analysts, the company said the Sprint deal does not change naming rights on the home field for the White Sox, U.S. Cellular Field.

"We have a long-term relationship with the White Sox," said David Kimbell, chief marketing officer at U.S. Cellular. "Even after this transaction, we're going to have 1,400 associates in Chicago so that relationship (with the White Sox) is not part of that deal and will not be changing."
A U.S. Cellular "consumer experience" center at the ballpark will be staying in place, according to the company. The company operates 116 retail stores in the Chicago area, but the U.S. Cellular Field location is not included in that total because no products are sold there.

Dillon emphasized that the carrier will continue to provide the same level of customer service during the transition period and that its subscribers will experience "no immediate change." The company has created a website, www.uscellularinfo.com, that explains the transaction to consumers.

For now, neither U.S. Cellular nor Sprint are offering details on what the transition will look like for affected customers. Dillon said the company will be keeping an eye on its subscriber base to prevent defections and "making sure our customers are very aware there is no change or impact on them for many months."
Stores will remain open and consumers are encouraged to continue upgrading their devices and redeeming reward points through U.S. Cellular's loyalty program, Dillon said. In addition, she said the company will remain "very competitive and aggressive around the holiday period" when it comes to marketing, even in areas that are being sold to Sprint.

The deal with Sprint does not include U.S. Cellular's network equipment, such as the towers and other infrastructure it has in affected markets. The Chicago-based carrier will keep running its network during a transition period, after which Sprint will notify U.S. Cellular as to when it should shut down those operations.

Also on Wednesday, U.S. Cellular said its third-quarter net income dropped 43 percent, as the company subsidized sales of new smartphones.

U.S. Cellular earned $35.5 million, or 42 cents per share, down from $62.1 million, or 73 cents per share, in the same quarter last year. Revenue rose 3 percent to $1.14 billion.

Sprint shares finished at $5.62, down 1.9 percent. U.S. Cellular Corp. shares were closed at $34.18, down 12.4 percent.